On Aug. 23, the Argentine government’s statistics agency, INDEC, announced an unemployment rate of 9.3 percent, a full percentage point higher than experts projected, according to Bloomberg News. However, earlier in the month, the agency released a report showing that inflation had slowed significantly from 4.2 percent in May to 2 percent in July. How well as the administration of President Mauricio Macri, now in office for more than eight months, been handling the economy? Will lower inflation and more outreach attract more investors, or will they be scared off by a sluggish recovery or other factors? When can Argentina expect to see growth in jobs and output? Will Argentines, which INDEC says have $232 billion in assets stashed abroad, bring their money back home soon?
Claudio Loser, director and CEO of Centennial Group Latin America and senior fellow at the Inter-American Dialogue: “President Macri and his high-quality team are finding increasingly complex roadblocks in their efforts to bring Argentina back to normalcy. Many supporters are losing faith at a faster pace than foreigners, and Kirchneristas and the radical left are seeking to oust the new president. Well-regarded political analysts say the country is in deep trouble. However, economic analysts are more positive, and international opinion remains solidly behind the current Argentine government. The negative facts are clear: Argentina is in recession; measured price increases since Macri took over amount to about 40 percent, mainly due to exchange rate and tariff adjustments (gas and electricity); interest rates and the public sector deficit are high; and there is infighting and clumsy dialogue with the public by government officials. On the other hand, the recession is the mildest experienced in the last 15 years—including two during the Kirchner years—and seems to be reversing; prospects for Brazil’s economy are increasingly favorable; high unemployment reflects in part the firing of previous massive political hiring; the price increases reflect clumsily managed but unavoidable one-time adjustments; the government has been successful in opening the external sector and dealing with its debt problems; the size of the public deficit is somewhat exaggerated, even though high; and money is coming in. A somewhat arrogant government approach, aggressive actions by the radical opposition, and the recession should be taken very seriously, but the prospects are far from the grim picture painted by the (almost genetically) impatient Argentines.”
Mario Rapoport, professor of political economy at the University of Buenos Aires: “For the first time in the country’s history, the principal economic groups have come to power through free elections, primarily through the public administration without the mediation of the traditional political parties. The ministries are run by corporate chiefs, whose gestation is very different from the state’s. On the one hand, they have favored agricultural exports, mining companies and big businesses by eliminating quotas and taxes. On the other, through diverse and drastic measures, 150,000 workers lost their jobs in the private and public sectors, the currency was substantially devalued, the inflation rate doubled, public service prices were raised, domestic consumption fell, and many medium and small businesses are bankrupt or on the verge of disappearing. This is not a new policy in Argentina, as it resembles that of the minister of the economy under the last military dictatorship, José Alfredo Martínez de Hoz, who promised the arrival of life-saving external and internal investment, the reduction of costs and inflation, and an increase in exports. All of that failed, and now we have created in eight months an instant crisis that did not exist before, though there were economic problems to solve. But the practice of severe bloodletting to cure the common cold ended long ago. It is not true that inflation has been slowed consistently notwithstanding the monthly statistics, nor is it true that new investment will come, despite the whitewashing. Nor will exports increase to a world still in crisis. It is not a favorable future, but rather an unfavorable past that is returning.”
Gabrielle Trebat, director for Brazil and the Southern Cone at McLarty Associates: “President Macri has initiated a number of reforms aimed at returning Argentina to long-term, sustainable growth. Efforts have focused on closing Argentina’s fiscal deficit, attracting investment and revamping Argentina’s statistics agency to accurately reflect economic reality; more controversial measures included a repeal of popular utility subsidies and reductions in government employees to streamline a bloated bureaucracy. A landmark deal with holdout creditors enabled Argentina to re-access international credit and provide needed financing for reforms. While President Macri continues to enjoy high approval ratings, the economic adjustment has proven painful for consumers and has diminished his party’s chances in the October 2017 midterm elections. The decision to cut government energy subsidies produced huge savings, but led to a 400 percent jump in consumer energy costs. GDP is forecast to contract 0.8 percent in 2016 before returning to growth next year while inflation for 2016 is now expected to hit 40 percent. Divisions in Congress have also tethered President Macri’s reform agenda to his level of popular support, with his approval rating down from 70 percent in January to 50-60 percent in recent weeks. A large demonstration last Friday brought thousands of Argentines representing labor unions, teachers and diverse social movements to protest layoffs, utility price hikes and other austerity policies. Meanwhile, the success of the government’s tax amnesty plan—designed to encourage repatriation of overseas funds, bolster investment and raise tax revenue—remains undetermined. Despite the challenges, the government has won plaudits for its commitment to improving data transparency, and the central bank’s decision to keep interest rates high has bolstered the government’s credibility among bond buyers. While investors remain optimistic about Macri, it remains an open question whether he will have the political room to continue his economic course correction given the social backlash and structural obstacles to growth.”
Andrés Asiain, director of the Scalabrini Ortiz Center for Economic and Social Studies in Buenos Aires: “In economics, one often faces the dilemma of either choosing higher employment (at the cost of higher inflation) or price stabilization (but at the cost of increased unemployment). This dichotomy has been broken by the current administration, which has brought the economy to ‘stagflation,’ characterized by high inflation and unemployment. Since the change in government, the annual inflation rate increased from 24.4 percent (in November 2015) to 42.8 percent (in July 2016), according to provincial statistics that were not found to be altered by the previous administration. Meanwhile, unemployment reached 9.3 percent of the labor force according to the revamped national statistics institute. The increase in the unemployment rate is already a matter of controversy, and taking into account the statistics from the city of Buenos Aires, which has been governed by Macri’s party for several years, the unemployment rate increased 1.9 percent in the last year. The deceleration of inflation in the last month is a consequence of the courts’ rejection of a proposed hike in public service prices. Beyond the change in foreign exchange policy, which after the abrupt initial devaluation focused on the containment of dollar exchange prices propped up by foreign debt, the government exposed the market to the importation of several key consumption products. These policies are putting several production sectors in crisis, including producers of foods such as fruits, vegetables and milk, who have protested in recent days by giving away free food products to the impoverished public in the middle of the Plaza de Mayo.”